Online Processor Digency Gets Close to Geo-Location Pilots

Digency Inc. is within a month of signing its first clients for tests of a new system it has developed that fights e-commerce fraud by pinpointing Web users' geographic location, according to Ed R. Starrs, chief executive of the El Dorado Hills, Calif.-based e-commerce processor. Dubbed “Geocate,” the product has drawn interest from a major bank, card company, and transaction processor, he says, though he won't name them. “We have talked to key players in the industry and they're all over it,” he says. “Now we have to prove it works.” Digency, which has been developing the product for two years and has been testing it internally for the past three weeks, is working on a demonstration site to show off its capabilities, and hopes to have its first client pilots under way soon. Unlike Internet Protocol tracing, Geocate locates the physical location of any Internet user in real time, regardless of the IP address of the user's Web connection. Thus the technology can locate users within a 30-mile radius whether they are connecting via their home desktop computer or a remote device elsewhere. Digency combines location data with other the results of other scans, including neural-networking, to confirm identity, billing address, and the probable legitimacy of the transaction. The company has based Geocate on technology for which it was recently awarded a license by the federal government, though Starrs says Digency has over time added its own software and algorithms to enhance accuracy. Now, he says, the company is working on winning the exclusive rights to the technology. “We're about 90 days away from exclusivity,” he says. Founded four years ago, Digency only began processing Internet transactions in December (Digital Transactions News, Jan. 27). A month later, the company was handling about 500 transactions a day for some two dozen e-commerce clients, numbers Starrs says have grown slowly since then. Because of the investment in dollars and management time the development of Geocate has demanded, Starrs says, the company has had to limit the growth of its payments business. “Everything but Geocate has been pushed back,” he says. Now, he says, Digency will begin its aggressive push to sign up Web merchants in August, seven months later than originally planned. Starrs in January laid out an ambitious business plan that called for the company to earn $13 million in fee revenue in 2004 from some 240 online merchants doing more than 1.2 million transactions a month. The targeted traffic will come from an array of markets in addition to conventional Internet payments, including auction-based person-to-person transactions, mobile payments, and micropayments. Consumers who are ready to make a purchase on a site using Digency can use a credit or debit card or an electronic check through the automated clearing house. Digency stands in as the merchant, assuming liability and paying related discount or other transaction fees. Once the consumer's identity is authenticated and the transaction is authorized, Digency credits an account for the consumer with the amount of the purchase. The consumer then goes to a screen that allows him to transfer the proceeds to the merchant's account. Digency claims these steps require fewer clicks than any other online transaction service. Digency also handles back-office functions, including chargeback administration, manual transaction review, and data security, and charges merchants a fee ranging from 3.5% to 5.5% of the purchase, plus a flat fee of $1 per transaction. Consumers pay no fee. Digency has built its own network gateway and is working with a number of merchant banks, chiefly Wells Fargo.